U.S.-based Internet company Yahoo says it will pay $1 billion in cash for a 40 percent stake in Alibaba, one of China's largest online retailers.

Yahoo officials announced the agreement Thursday in Beijing. As part of the deal, Yahoo will have 35 percent voting rights in the company, making it the largest strategic investor in Alibaba.

Terry Semel, Chief Executive of Yahoo, says the combination of Yahoo and Alibaba is the best approach for Yahoo to win in the East Asian region.

Alibaba, based in Hangzhou southwest of Shanghai, runs business-to-business and consumer auction sites.

Analysts say the deal will increase Yahoo's exposure in China, and will also help it compete against U.S.-based Ebay, which runs the world's largest online auction site.

Some information for this report provided by AP, AFP and Reuters.